Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan” will be posted around 9:00am EDT, every trading day.
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THE GIST (“THE WHAT”)
Broad-based sell-off extended into the second session amid dimming prospects of a potential trade truce. Intensifying trade tensions ahead of the bilateral trade talks overshadowed optimism following a dovish Fed. Brexit and geopolitical uncertainty further dampened sentiment.
Falling back below the 50 DMA and 100 DMA, the S&P500 index pulled back sharply during the last trading hour and closed near session lows at 2893.06, down 45.73 points and losing 1.56% over previous session’s close. Nine out of the eleven primary sectors closed more than 1% lower, with Financials leading the declines.
THE DETAILS (The “How & Why”):
Ratcheting up trade tensions ahead of the high-level bilateral trade talks, the Trump administration blacklisted 8 more Chinese technology companies from importing U.S. technologies, while considering the potential blocking of U.S. Government pension funds from investing in Chinese stocks. The index gapped down sharply at the open, giving up key support of 100 DMA once again.
Dovish signals by Jerome Powell helped trim losses mid-afternoon. In an attempt to ease the strains experienced in overnight lending markets, the Fed is expected to ratchet up its purchases of short-term Treasury securities and expand its balance sheet. While indicating that this move does not suggest a return to quantitative easing, he reinforced that the Fed will remain data-dependent and not on any preset course of action. He also signaled at the willingness to a rate cut, if warranted by the economic data.
Losses across sectors accelerated during the last trading hour following reports that the Trump administration has issued visa restrictions of some Chinese officials over their alleged abuses of Muslim minorities in Xinjiang. Except Consumer Staples and Real Estate, all the other sectors tumbled more than 1% amid a late-session sell-off.
Treasury yields were broadly higher ahead of the FOMC minutes but retreated sharply following Powell’s remarks. The 10-year Treasury yields settled 2.1 basis points lower at 1.532%. Financials posted the worst percentage declines of 2.02%. Citigroup Inc., Bank of America Corp, JPMorgan Chase & Co and Wells Fargo & Co shed more than 2% apiece.
Semiconductors, software and other technology stocks extended their weakness amid escalating trade tensions. All FAANG components traded more than 1% lower, led by a 1.57% fall in Amazon.com Inc. IPG Photonics Corp, Qualcomm Inc., Seagate Technology, Analog Devices Inc. and Western Digital Corp were the other major decliners within this space, all losing more than 4% each.